Today has been JPY and JGB day. Japan 10-year yields blasted higher over the past week, with the JGB yield up from -0.291% lows last Wednesday to a high of -0.007% today or nearly back into positive territory. All else equal, this seems to suggest markets are giving the initially disappointing combined BoJ/MoF stimulus over the past week fresh credibility, or else this is just an investor buyers’ strike on JGBs (Nikkei closed 1.4% lower). The JGB rout has spread to Europe with the Bund yield at -0.027% making eyes at positive territory too from a -0.122% low last week, while the T-note yield has backed up to 1.56% from post-GDP lows of 1.45% on Friday. Last night the Abe cabinet approved a 13.5 trillion yen fiscal stimulus package, including cash payouts to low-income earners, as well as infrastructure spending. Prime Minister Abe said “we compiled today a strong economic package draft aimed at carrying out investment for the future.” Yet, with USDJPY probing 101.00 3-week lows the FX market continues to dull the stimulus impact.
We identified the underlying JPY strength and the high exceptions of the stimulus package in last week’s LIVE analysis webinars. The signs were on the charts. We were SHORT (1) CADJPY (from 80.65) (2) AUDJPY (from 79.18) and (3) EURJPY (from 114.87), the CADJPY hit target within a few hours and allowed us to open a (4) GBPJPY short at 138.77. The GBP and AUD trades have subsequently hit target and been closed. The EURJPY trade remains open with a target of 112.67. The final Live analysis trade was another SHORT position on the USDCHF from 0.9811 to 0.9731 for 79 pips. Each trade returned on average a two percent move and a good risk reward.
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